U.S. consumer outlook brighter; home prices up

The rise in a confidence index this month

The rise in a confidence index this month — which is still far below its historic average — signals shoppers may increase spending. Above: An employee arranges clothing at a Times Square store. (March 12, 2013) (Credit: Bloomberg )

A gauge of consumer confidence rose in April, reversing a decline in March, The Conference Board said Tuesday. The private research group attributed the gain to optimism about hiring and pay increases. Economists also cited higher home values, cheaper gasoline and a surging stock market.

That brighter outlook could offset some of the drag from the recent tax increases and government spending cuts.

Despite the rise in the index, to 68.1 from 61.9 in March, confidence remains well below its historic average of 92. Still, the increase signaled that consumers, whose spending drives about 70 percent of the economy, see better times ahead.

A separate report Tuesday showed home prices nationwide rose in February by the most in nearly seven years. The Standard & Poor's/Case-Shiller 20-city home price index jumped 9.3 percent from a year earlier.

While prices in all 20 cities rose on an annual basis for a second straight month, the New York market, along with Boston and Chicago, posted the smallest year-over-year gains. Phoenix, San Francisco, Las Vegas and Atlanta showed the biggest gains.

The reports were released the same day the Federal Reserve's policymaking committee began a two-day meeting. Analysts expect the Fed to announce Wednesday that it will maintain its low interest rate policies, which include an $85-billion-a-month bond-buying program. The Fed's bond purchases are intended to keep interest rates low to spur borrowing, spending and investing.

Big changes in government policy have caused sharp swings in consumer sentiment in recent months. Social Security taxes rose 2 percentage points Jan. 1. That lowered incomes for a typical household earning $50,000 by about $1,000 this year. A household with two highly paid workers has up to $4,500 less.

And the across-the-board government spending cuts that began taking effect March 1 forced many federal agencies to furlough workers, which reduced their incomes. Government contractors are also likely to reduce jobs in response to the government cuts.

Yet, consumers have shown resilience. Economists note that on top of higher home values, record stock prices have boosted household wealth. Consumers who feel wealthier tend to be more confident and more willing to spend.

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